U.S. stocks dropped on concern European leaders weren’t making progress in solving the region’s debt crisis. Gold rallied, the dollar fell to a two-month low and Treasury yields touched the lowest in more than a week amid speculation the Federal Reserve will add to monetary stimulus.

The Standard & Poor’s 500 Index fell 0.8 percent, the most in a month, to 1,402.08 at 4 p.m. New York time. European stocks reversed an early gain, losing 0.6 percent. Gold rose to a four- month high while crude tumbled, erasing an advance of 1.1 percent. The Dollar Index slid for a fourth day. Treasury 10- year yields fell to 1.67 percent and Spain’s 10-year yield climbed seven basis points.

“We’re tipping over into a corrective phase in stocks,” Barry James, who helps oversee $3.3 billion as president of James Investment Research in Xenia, Ohio, said in a telephone interview. “Europe is the key driver in the world right now. European leaders aren’t really addressing the root problems.”

German Chancellor Angela Merkel said Europe is in one of its deepest crises and while the path to a solution is inevitably “long and arduous,” the euro region will emerge stronger. A report today showed China’s manufacturing may contract at a faster pace in August, a day after People’s Bank of China Governor Zhou Xiaochuan said adjustments to interest rates and banks’ reserve requirements are still possible. Minutes of the U.S. Federal Reserve’s last meeting showed many members favored more stimulus unless the pace of economic recovery picks up.

Aid Program
Equities extended losses as the European Union said it is focused on its aid program for Spain’s banks and hasn’t received a request for a full bailout from the euro-area nation. German Finance Minister Wolfgang Schaeuble said that allowing Greece more time to meet its debt obligations would not solve the country’s problems and would increase costs for creditors.

Merkel hosted French President Francois Hollande today as the leaders of Europe’s two biggest economies seek common ground on Greece and the wider euro-area debt crisis. Greece’s Prime Minister, Antonis Samaras, will follow Hollande to Berlin tomorrow and travel on to Paris on Aug. 25.

Euro-area services and manufacturing output contracted for a seventh straight month in August, according to a composite index based on a survey of purchasing managers in both industries in the 17-nation euro area. The preliminary reading for a purchasing managers’ index for China released today by HSBC Holdings Plc and Markit Economics was 47.8 after July’s final 49.3 figure. If confirmed, it would be the weakest level since November.

Economic Data
U.S. stocks fell as the number of Americans filing applications for unemployment benefits climbed last week to a one-month high, showing little progress in the labor market. Sales of new houses in the U.S. climbed 3.6 percent to a 372,000 annual pace, following a 359,000 rate in June that was higher than previously estimated, figures from the Commerce Department showed. The median estimate of 72 economists surveyed by Bloomberg called for a rise to 365,000.

The S&P 500 has rallied 9.7 percent since June 1 on speculation global central banks will take action to stimulate growth. Fed Bank of Chicago President Charles Evans told reporters in Beijing today that easing policies would support economic growth around the world, including in China. James Bullard, the Fed Bank of St. Louis President, said the minutes of this month’s meeting were no longer as relevant because the U.S. economy has picked up in the past month.

“People aren’t willing to invest,” said Stephen Hammers, the chief investment officer at Brentwood, Tennessee-based Compass EMP Funds, which manages about $1 billion in assets. “Any time you get news we might get additional stimulus, you’ll have some short-term pick up in the markets but it doesn’t last.”

Companies most tied to economic growth posted declines. The Morgan Stanley Cyclical Index fell for the fourth straight day, losing 1.2 percent for the biggest drop in a month. The Dow Jones Transportation Average tumbled 1 percent for the biggest retreat since Aug. 1. The KBW Bank Index, made up of 24 lenders, slid 1.1 percent.

European Stocks
The Stoxx Europe 600 Index slipped 0.6 percent after gaining as much as 0.6 percent. Royal Ahold NV slid 3.6 percent after the Dutch retailer reported an operating margin in its domestic market that missed analysts’ estimates. Petropavlovsk Plc tumbled 16 percent, its biggest plunge in more than three years, after the gold miner posted a 90 percent drop in first- half net income from a year earlier.

Anglo American Plc added 1.7 percent as the commodity producer was said to be nearing an agreement to end its 10-month dispute with Chile’s Codelco over a copper mine, according to a person with knowledge of the negotiations.

The yield on 10-year Treasuries dropped two basis points to 1.67 percent, after an 11 basis-point decline yesterday. It touched 1.66 percent, the lowest level since Aug. 14. Germany’s 10-year bund yield fell eight basis points to 1.38 percent. The additional yield investors demand to hold Spanish 10-year debt instead of benchmark German securities briefly widened to more than 5 percentage points for the first time since Aug. 17.

Dollar Weakens
The Dollar Index dropped to as low as 81.221, the least since June 20. The greenback slid 0.3 percent to $1.2562 per euro, after reaching $1.2524, the least since July 4. South Korea’s won rose the most in two weeks to 1,130.60 per dollar.

The S&P GSCI Index of 24 commodities dropped 0.4 percent, reversing a gain of as much as 0.8 percent, as crude fell from a three-month high. Oil for October delivery fell 1 percent to $96.27 after advancing as high as $98.29 a barrel.

Gold climbed 2 percent to settle at $1,672.80 an ounce, the highest since April 12. Silver futures led gains in the GSCI gauge of commodities, rising 3 percent. Copper jumped 1.1 percent.

Corn futures retreated for a second day, tumbling 2.4 percent, on speculation crop damage from the worst U.S. drought in a half-century wasn’t as severe as expected by the government. Average corn yields in Illinois, the biggest U.S. grower after Iowa, may average 121.6 bushels an acre, participants on the eastern leg of the Professional Farmer Crop Tour said yesterday. The U.S. Department of Agriculture estimated the state’s yield on Aug. 10 at 116 bushels.